Apple Says Profits Were Flat, Citing Slump in China

anastasios pallis

Apple said on Tuesday that profits in its most recent quarter were flat compared with a year earlier because of an economic slowdown in China and diminishing demand for new iPhones.

The disappointing financial performance had been expected since Jan. 2, when Apple, for the first time in 16 years, revised its forecast for the quarter. But the announcement on Tuesday indicates a difficult road ahead for Apple, which just five months ago became the first company to be valued above $1 trillion.

After years of expansion and record-setting profits, Apple appears to be entering a period of vulnerability. While it has had some success with new products like the Apple Watch, the company has not found another product with the global impact of the iPhone, which was introduced more than a decade ago. And it is uniquely vulnerable to slowing consumer demand in China as well as potential tariffs on Chinese-made products.

Apple’s stock price is down more than 32 percent since its peak last summer, and now it is worth less than several of its longtime rivals in the tech industry.

Apple could face more financial pressure if the Trump administration places tariffs on phones made in China — something President Trump has threatened to do. The bulk of Apple’s products are made in Chinese factories.

Now there are new concerns about a security flaw in the iPhone. On Monday, Apple customers said an iPhone user could call another iPhone and listen in on that person’s conversations through the device’s microphone — even if the recipient did not answer the call. The problem was the result of a bug involving Apple’s FaceTime app. The company promised to have a fix by the end of the week.

Total revenue for the quarter was $84.3 billion, a 5 percent drop from a year earlier.

Sales of iPhones, following a global trend, have been leveling off for several years. Their revenue was $51.98 billion, a 15 percent drop from a year earlier. It’s harder now to offer more specifics on iPhone sales because Apple recently stopped disclosing how many units it sells each quarter.

Luca Maestri, Apple’s chief financial officer, said in an interview that sales had slumped largely because current iPhone owners were waiting longer to upgrade their devices, a trend that has continued into the current quarter.

Apple attributed some of its issues in China to a trade war with the United States. And there is concern that some Chinese customers are shying away from Apple products out of national pride, particularly since the authorities in the United States brought charges against Huawei and its chief financial officer, Meng Wanzhou, citing a decade-long attempt to steal trade secrets, obstruct a criminal investigation and evade economic sanctions on Iran.

“We did not foresee the magnitude of the economic deceleration, particularly in greater China,” Timothy D. Cook, Apple’s chief executive, said this month.

But some data suggest Apple faces more fundamental problems with its business in China. Chinese consumers appear to be opting for less expensive but similar smartphones from Chinese handset makers, particularly Huawei. Some of Apple’s latest phones top $1,000, far above the typical cost for its Chinese competitors.

Total sales in region that includes China were down 25 percent in the fourth quarter to $13.17 billion.

Mr. Maestri, Apple’s chief financial officer, said Apple had cut prices in China for the iPhone XR, the lowest-priced new iPhone, to account for the strength of the United States dollar. An Apple spokesman said the company had cut the price by several percentage points, so it now costs roughly $965 in China.

“That has been well received,” Mr. Maestri said, adding that sales had improved since the change.

“We’ve actually seen the economic situation in China continue to deteriorate over the course of the quarter,” Mr. Maestri said. “From mid-November onwards, we’ve seen a deceleration of economic activity in China.”

Apple’s earnings per share were $4.18 in the recent quarter, beating analysts’ expectations by a penny.

The company said it expected between $55 billion and $59 billion in revenue in the current quarter, below analysts’ expectations for $59 billion.

Apple’s share price was up more than 2 percent immediately after its results were announced on Tuesday.

This article is from NYT – go to source

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